epublic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT
OF APPEALS, respondent.

QUISUMBING, J.:
This petition for review assails the Resolution 1 of the Court of Appeals dated September
22, 1993 affirming the Decision 2 and a Resolution 3 of the Court Of Tax Appeals which
denied the claims of the petitioner for tax refund and tax credits, and disposing as
follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due
course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution
dated July 20, 1993, are hereby AFFIRMED in toto.
SO ORDERED. 4

The Court of Tax Appeals earlier ruled as follows:

WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in
the amount of P5,299,749.95 is hereby denied for having been filed beyond the
reglementary period. The 1986 claim for refund amounting to P234,077.69 is likewise
denied since petitioner has opted and in all likelihood automatically credited the same to
the succeeding year. The petition for review is dismissed for lack of merit.
SO ORDERED. 5

The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking
corporation duly organized under Philippine laws, filed its quarterly income tax returns
for the first and second quarters of 1985, reported profits, and paid the total income tax
of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos

and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos.
0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income
Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a
net loss of P14,129,602.00, and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The
lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in
1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among
others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the
first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes
withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for
P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue,
petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax
Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine
Bank of Communications vs. Commissioner of Internal Revenue."
The losses petitioner incurred as per the summary of petitioner's claims for refund and
tax credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:
1985 1986

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax.
Payments Made 5,016,954.00
Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============

* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A

forty five centavo difference was noted.

On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied
the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95,
on the ground that it was filed beyond the two-year reglementary period provided for by
law. The petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise
denied on the assumption that it was automatically credited by PBCom against its tax
payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision
but the same was denied due course for lack of merit. 6
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA
with the Court of Appeals. However on September 22, 1993, the Court of Appeals
affirmed in toto the CTA's resolution dated July 20, 1993. Hence this petition now before
us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom which relied in good faith on the formal
assurances of BIR in RMC No. 7-85 and did not immediately file with the
CTA a petition for review asking for the refund/tax credit of its 1985-86
excess quarterly income tax payments can be prejudiced by the
subsequent BIR rejection, applied retroactivity, of its assurances in RMC
No. 7-85 that the prescriptive period for the refund/tax credit of excess
quarterly income tax payments is not two years but ten (10). 7
II. Whether the Court of Appeals seriously erred in affirming the CTA
decision which denied PBCom's claim for the refund of P234,077.69
income tax overpaid in 1986 on the mere speculation, without proof, that
there were taxes due in 1987 and that PBCom availed of tax-crediting
that year. 8

Simply stated, the main question is: Whether or not the Court of Appeals erred in
denying the plea for tax refund or tax credits on the ground of prescription, despite
petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two years to
ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by
prescription relying on the applicability of Revenue Memorandum Circular No. 7-85
issued on April 1, 1985. The circular states that overpaid income taxes are not covered
by the two-year prescriptive period under the tax Code and that taxpayers may claim
refund or tax credits for the excess quarterly income tax with the BIR within ten (10)
years under Article 1144 of the Civil Code. The pertinent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85

SUBJECT: PROCESSING OF REFUND OR TAX

CREDIT OF EXCESS CORPORATE INCOME TAX
RESULTING FROM THE FILING OF THE FINAL
ADJUSTMENT RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 1077 which provide;
xxx xxx xxx
It has been observed, however, that because of the excess tax payments, corporations
file claims for recovery of overpaid income tax with the Court of Tax Appeals within the
two-year period from the date of payment, in accordance with sections 292 and 295 of
the National Internal Revenue Code. It is obvious that the filing of the case in court is to
preserve the judicial right of the corporation to claim the refund or tax credit.
It should he noted, however, that this is not a case of erroneously or illegally paid tax
under the provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of
the overpaid income tax or claim for automatic tax credit. To insure prompt action on
corporate annual income tax returns showing refundable amounts arising from overpaid
quarterly income taxes, this Office has promulgated Revenue Memorandum Order No.
32-76 dated June 11, 1976, containing the procedure in processing said returns. Under
these procedures, the returns are merely pre-audited which consist mainly of checking
mathematical accuracy of the figures of the return. After which, the refund or tax credit is
granted, and, this procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of Tax
Appeals in order to preserve the right to claim refund or tax credit the two year period. As
already stated, actions hereon by the Bureau are immediate after only a cursory pre-audit
of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal
Revenue excess income tax paid under the provisions of Section 86 of the Tax Code
within 10 years from the date of payment considering that it is an obligation created by
law (Article 1144 of the Civil Code). 9 (Emphasis supplied.)

Petitioner argues that the government is barred from asserting a position contrary to its
declared circular if it would result to injustice to taxpayers. Citing ABS CBN
Broadcasting Corporation vs. Court of Tax Appeals 10 petitioner claims that rulings or
circulars promulgated by the Commissioner of Internal Revenue have no retroactive
effect if it would be prejudicial to taxpayers, In ABS-CBN case, the Court held that the
government is precluded from adopting a position inconsistent with one previously taken
where injustice would result therefrom or where there has been a misrepresentation to
the taxpayer.

Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly
provides for this rules as follows:
Sec. 246 Non-retroactivity of rulings Any revocation, modification or reversal of any of
the rules and regulations promulgated in accordance with the preceding section or any of
the rulings or circulars promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial to the taxpayers
except in the following cases:
a). where the taxpayer deliberately misstates or omits
material facts from his return or in any document
required of him by the Bureau of Internal Revenue;
b). where the facts subsequently gathered by the Bureau
of Internal Revenue are materially different from the
facts on which the ruling is based;
c). where the taxpayer acted in bad faith.

Respondent Commissioner of Internal Revenue, through Solicitor General, argues that

the two-year prescriptive period for filing tax cases in court concerning income tax
payments of Corporations is reckoned from the date of filing the Final Adjusted Income
Tax Return, which is generally done on April 15 following the close of the calendar year.
As precedents, respondent Commissioner cited cases which adhered to this principle,
to wit ACCRA Investments Corp. vs. Court of Appeals, et al., 11 and Commissioner of
Internal Revenue vs. TMX Sales, Inc., et al.. 12 Respondent Commissioner also states
that since the Final Adjusted Income Tax Return of the petitioner for the taxable year
1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988
to seek relief from the court. Further, respondent Commissioner stresses that when the
petitioner filed the case before the CTA on November 18, 1988, the same was filed
beyond the time fixed by law, and such failure is fatal to petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find
that, contrary to the petitioner's contention, the relaxation of revenue regulations by
RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is
to generate funds for the State to finance the needs of the citizenry and to advance the
common weal. 13 Due process of law under the Constitution does not require judicial
proceedings in tax cases. This must necessarily be so because it is upon taxation that
the government chiefly relies to obtain the means to carry on its operations and it is of
utmost importance that the modes adopted to enforce the collection of taxes levied
should be summary and interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit should be exercised within
the time fixed by law because the BIR being an administrative body enforced to collect
taxes, its functions should not be unduly delayed or hampered by incidental matters.

Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC
of 1997) provides for the prescriptive period for filing a court proceeding for the recovery
of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceedings shall begun after the expiration of two years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment; Provided however, That the Commissioner may, even without a
written claim therefor, refund or credit any tax, where on the face of the return upon which
payment was made, such payment appears clearly to have been erroneously paid.
(Emphasis supplied)

The rule states that the taxpayer may file a claim for refund or credit with the
Commissioner of Internal Revenue, within two (2) years after payment of tax, before any
suit in CTA is commenced. The two-year prescriptive period provided, should be
computed from the time of filing the Adjustment Return and final payment of the tax for
the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 15 this
Court explained the application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the time
that the refund is ascertained, which can only be determined after a final adjustment
return is accomplished. In the present case, this date is April 16, 1984, and two years
from this date would be April 16, 1986. . . . As we have earlier said in the TMX Sales
case, Sections 68. 16 69, 17 and 70 18 on Quarterly Corporate Income Tax Payment and
Section 321 should be considered in conjunction with it 19

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the
prescriptive period of two years to ten years on claims of excess quarterly income tax
payments, such circular created a clear inconsistency with the provision of Sec. 230 of
1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated
guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative
rulings (in the sense of more specific and less general interpretations of tax laws) which
are issued from time to time by the Commissioner of Internal Revenue. It is widely
accepted that the interpretation placed upon a statute by the executive officers, whose
duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous. 20
Thus, courts will not countenance administrative issuances that override, instead of
remaining consistent and in harmony with the law they seek to apply and implement. 21

In the case of People vs. Lim, 22 it was held that rules and regulations issued by
administrative officials to implement a law cannot go beyond the terms and provisions of
the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only
inconsistent with but is contrary to the provisions and spirit of Act. No 4003 as amended,
because whereas the prohibition prescribed in said Fisheries Act was for any single
period of time not exceeding five years duration, FAO No 37-1 fixed no period, that is to
say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003
and FAO No. 37-1 was probably due to an oversight on the part of Secretary of
Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act
prevails, for the reason that the regulation or rule issued to implement a law cannot go
beyond the terms and provisions of the
latter. . . . In this connection, the attention of the technical men in the offices of
Department Heads who draft rules and regulation is called to the importance and
necessity of closely following the terms and provisions of the law which they intended to
implement, this to avoid any possible misunderstanding or confusion as in the present
case. 23

Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes
or errors of its officials or agents. 24 As pointed out by the respondent courts, the
nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is
an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC. for
being contrary to the express provision of a statute. Hence, his interpretation could not
be given weight for to do so would, in effect, amend the statute.
It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC
No. 7-85, is estopped by the principle of non-retroactively of BIR rulings. Again We do not
agree. The Memorandum Circular, stating that a taxpayer may recover the excess
income tax paid within 10 years from date of payment because this is an obligation
created by law, was issued by the Acting Commissioner of Internal Revenue. On the
other hand, the decision, stating that the taxpayer should still file a claim for a refund or
tax credit and corresponding petition fro review within the
two-year prescription period, and that the lengthening of the period of limitation on refund
from two to ten years would be adverse to public policy and run counter to the positive
mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of Tax
Appeals. Estoppel has no application in the case at bar because it was not the
Commissioner of Internal Revenue who denied petitioner's claim of refund or tax credit.
Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim and in
effect, ruled that the RMC No. 7-85 issued by the Commissioner of Internal Revenue is
an administrative interpretation which is out of harmony with or contrary to the express
provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to
do so would in effect amend the statute. 25

Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes
as part of the legal system of the country. But administrative decisions do not enjoy that
level of recognition. A memorandum-circular of a bureau head could not operate to vest
a taxpayer with shield against judicial action. For there are no vested rights to speak of
respecting a wrong construction of the law by the administrative officials and such
wrong interpretation could not place the Government in estoppel to correct or overrule
the same. 27 Moreover, the non-retroactivity of rulings by the Commissioner of Internal
Revenue is not applicable in this case because the nullity of RMC No. 7-85 was

declared by respondent courts and not by the Commissioner of Internal Revenue.

Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the
nature of a claim for exemption and should be construed in strictissimi juris against the
taxpayer. 28
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in
affirming CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in
1986), based on mere speculation, without proof, that PBCom availed of the automatic
tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess
of the total quarterly payments over the actual income tax computed in the adjustment
or final corporate income tax return, shall either (a) be refunded to the corporation, or
(b) may be credited against the estimated quarterly income tax liabilities for the quarters
of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the
option box provided in the BIR form) its intention, whether to request for a refund or
claim for an automatic tax credit for the succeeding taxable year. To ease the
administration of tax collection, these remedies are in the alternative, and the choice of
one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 the Court of Tax
Appeals, after examining the adjusted final corporate annual income tax return for taxable
year 1986, found out that petitioner opted to apply for automatic tax credit. This was the
basis used (vis-avis the fact that the 1987 annual corporate tax return was not offered by
the petitioner as evidence) by the CTA in concluding that petitioner had indeed availed of
and applied the automatic tax credit to the succeeding year, hence it can no longer ask
for refund, as to [sic] the two remedies of refund and tax credit are alternative. 30

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the
1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of
fact which we must respect. Moreover, the 1987 annual corporate tax return of the
petitioner was not offered as evidence to contovert said fact. Thus, we are bound by the
findings of fact by respondent courts, there being no showing of gross error or abuse on
their part to disturb our reliance thereon. 31
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals
appealed from is AFFIRMED, with COSTS against the petitioner.1wphi1.nt
SO ORDERED.
Bellosillo, Puno, Mendoza, and Buena, JJ., concur.
Footnotes

1. Penned by Associate Justices Isaali S. Isnami and concurred in by Associate Justice

Nathanael P. De Pano, Jr. and Associate Justice Corona Ibay Somera; rollo. 101-104.
2. Penned by Ernesto D. Acosta, Presiding Judge, concurred in by Associate Judge
Manuel K. Gruba and Associate Judge Ramon O. De Veyra; rollo, pp. 33-47.
3. Rollo, pp. 70-73.
4. Supra, see note 1, at p. 103.
5. Supra, see note 2. at p. 46.
6. Supra, see note 3, at 73.
7. Memorandum of petitioner, rollo, pp. 179-198, at p. 183.
8. Ibid., at p. 194.
9. Supra, See note 2, pp. 37-38.
10. 108 SCRA 142 (1981).
11. 204 SCRA 957 (1991).
12. 205 SCRA 184 (1992).
13. Napocor vs. Province of Albay, 186 SCRA 198 (1990), at p. 207.
14. Teodoro and de Leon, Law on Income Taxation, 1993 ed., at 485.
15. 244 SCRA 446 (1995).
16. Declaration of Corporate Quarterly Income Tax (now Sec. 75, 1997 NIRC).
17. Final Adjustment Return (now Sec. 76. 1997 NIRC).
18. Place of Filing (now Sec.77. 1997 NIRC).
19. Supra, see note 15, at p. 453.
20. People vs. Hernandez, 59 Phil. 272 (1933) at p. 276; Molina vs. Rafferty, 37 Phil. 545
(1918) at p. 555.
21. Commissioner of Internal Revenue vs. Court of Appeals, 240 SCRA 368 (1993) at p.
372.
22 108 Phil. 1091 (1960).
23. Ibid., at pp. 1093-1094.

24. Republic vs. Intermediate Appellate Court, 209 SCRA 90 (1992); DBP vs.
Commission on Audit, 231 SCRA 202 (1994); Sharp International Marketing vs. CA, 201
SCRA 299 (1991) GSIS vs. CA, 218 SCRA 233 (1990 citing Beronilla vs. GSIS, 36 SCRA
44, 55 (1970); Republic vs. PLDT, 26 SCRA 620 (1969); Pineda vs. CFI of Tayabas, 52
Phil. 803 (1929); Beguet Consolidated Mining Co. vs. Pineda 98 Phil. 711 (1956); Repulic
vs. Philippine Rabbit Bus Lines, Inc., 32 SCRA 211(1970); People vs. Castaeda, 165
SCRA 327 (1988).
25. Supra, see note 1, p. 102.
26. Sec. 8. Judicial decisions applying or interpreting the laws or the Constitution shall
form a part of the legal system of the Philippines.
27. Tan Guan vs. Court of Tax Appeals, 19 SCRA 903 (1967) at p. 907; Compania
General de Tabacos de Filipinas vs. City of Manila, 8 SCRA, 367 (1963) at p. 372.
28. Commissioner of Internal Revenue vs. Tokyo shipping Co., Ltd., 244 SCRA 332,
Province of Tarlac vs. Alcantara, 216 SCRA 790, Philippine Petroluem Corp. vs.
Municipality of Pililia Rizal, 198 SCRA 82, Commissioner of Internal Revenue vs.
Mitsubishi Metal Corp., 181 SCRA 214.
29. Sec. 69. Final Adjustment Return Every corporation liable to tax under Section 24
shall file a final adjustment return covering the total net income for the preceding calendar
or fiscal year. If the sum of the quarterly tax payments made during the said taxable year
is not equal to the total tax due on the entire taxable net income of that year the
corporation shall either:
a) Pay the excess tax still due; or
b) Be refunded the excess amount paid as tile case may be.
In case the corporation is entitled to a refund of the excess
estimated quarterly income taxes paid, the refundable amount
shown on its final adjustment return may be credited against the
estimated quarterly income tax liabilities for the taxable quarters
of the succeeding taxable year.
30. Supra, see note 1. at p. 103.
31. Philippine Refining Company vs. Court of Appeals, 256 SCRA 667 (1996) at p. 676,
citing: the Coca-Cola Export Corporation vs. Commissioner of Internal Revenue , et al.,
L-23604, March 15, 1974, 56 SCRA 5; Nasiad, et, al., vs. Court of Appeals, L-29318,
November 29, 1974, 61 SCRA 236.